14 March 2012
Last week Universities Australia chairman and Melbourne University vice-chancellor Glyn Davis said in an address at the National Press Club that the Commonwealth government’s new demand-driven system had created a “half” market where universities could compete for domestic students on quality, but not on price. In a subsequent op-ed piece in The Australian (Love child of Milton Friedman & Vladimir Lenin), Professor Davis and ACU V-C Greg Craven argued, that universities should be allowed additional flexibility to compete on price, subject to regulation.
“If we are to have an open market, then universities must be able to compete, at least to a reasonable extent, on price. By all means, constrain them by ceilings, equity and sensible regulation. Accept that some will be uninterested or incapable. But if there is a way of getting more total funding into a genuinely diverse, cash-hungry, expanding system, do it.” Most V-C’s are reportedly “on-board” with this call (see also What V-Cs think).
But at what point do fees become a barrier in a funding system underpinned by income contingent loans? Bruce Chapman (the “architect” of HECS) has observed that experience to date is that demand is relatively “inelastic” – demand has continued to grow as the price has increased.
A fundamental objection to the proposition that fees be increased is that Australian students already pay among the highest fees in the world – about the 5th highest, according to the OECD (behind the US, UK, Korea and Japan). To the extent that overall average funding per student place has remained relatively consistent in real terms in the decade to 2010, this has been maintained through increased student contributions. However, research by The University of Melbourne in its submission to the review indicated that the actual average burden of HECS debt carried by graduates is not, in relative terms, particularly onerous:
Current student contribution amounts are quite low compared to the earning potential of graduates…. the cost of a three-year course at the highest current annual student contribution amount (for example, commerce) is equivalent to around 18 weeks gross salary and 23 weeks net salary for male employees on median male professional employee earnings. For female employees on a median professional income, a three-year course at the highest annual student contribution amount is equivalent to around 23 weeks gross earnings and 29 weeks net salary.
A 2011 report on global trends in tuition observed that:
…the trend towards more private investment in higher education continues unabated. In virtually every region of the world, given increasing enrolments, rising costs and the ongoing competition for public resources from other critical public sector services, higher education institutions are being pushed to access increasing proportions of their revenue from private sources including student tuition fees, donations and income generating activities such as faculty consulting and facility rental.
But it also noted that equity and access concerns have led to changes in financial assistance policies that are aimed at mitigating the negative effects of decreased government investment in higher education. Indeed, the report specifically notes that “Australia is the one country where policies around affordability are changing on the scale necessary to affect outcomes …with its significant expansion of its student aid programs.”
Graduates earn considerably higher lifetime earnings than non-graduates, with one study showing that in Australia this “premium” is approximately $433,000. Even with the costs of study taken onto account (fees, books, foregone earnings), graduates still experience a substantial net monetary gain. The background paper prepared for the review of base funding cites research estimating that the “private rate of return” of higher education in Australia at 15%-17%.
With these points in mind, on balance, there’s a strong case for some further degree of fee deregulation, within a capped fees model, allowing institutions to charge fees in a range up to specified limits. In 2005, new funding arrangements were introduced to allow universities to set student contributions for students in CSPs in a range from zero to 25% above 2004 rates. All universities relatively quickly moved to the top of that range in all disciplines. The failure of this exercise in limited fee deregulation might be largely ascribed to the cost pressures facing universities, due to overall inadequate funding.
Currently the maximum student contribution is specified for each of the eight funding clusters funding (that is, there are eight caps ranging from $4289 pa for science through to around $9,000 pa for medicine). Each university gets exactly the same as any other university for teaching in a particular area. A radical (and therefore admittedly difficult) model would be to set only one cap at a relatively high level (for argument’s sake, say, $15,000), against which universities could set their own prices from $0 to $15,000, allowing price differentials to emerge. For example, currently the maximum student contribution for law is $8,859 pa, whatever the university. Under the single cap scheme, one university might charge, say, $12,000 pa and another, say, $8,000.
Alternatively, the current system might be capped to more realistic levels, allowing price differentiation to emerge. “Notional” student contributions (call them perhaps the benchmark price) against the current clusters could be increased by a meaningful amount – say, 10- 15%– with the capacity of institutions to charge over that notional contribution at a somewhat higher level than at present – say 30-40%. Nevertheless, “best practice” in funding reform would suggest a relatively significant increase in public funding, which might mitigate, for example, any increase in notional student contributions: at the very least, it would be reasonable to expect an increase in the CGS component of base funding commensurate to any increase in the student contribution.
The above is a revised extract from InterMediate’s submission to the Review of Base Funding.